Alberta Queen's Bench Rules on Deer Creek Fair Value Claims

An Alberta court has dismissed claims led by Paulson & Co. Inc. that the Canadian subsidiary of French multinational Total S.A. offered far less than fair value to shareholders arising from its 2005 acquisition of Deer Creek Energy Limited.

In a 132-page judgment released on June 13, 2008, Justice Barbara Romaine of the Alberta Court of Queen's Bench found that the fair value of Deer Creek's shares was $31 at the relevant valuation date. She dismissed claims put forward by Paulson and a number of other smaller shareholders that the shares were worth between $110 and $200 per share. Given the number of shares in respect of which dissents were registered, the amounts claimed in excess of that offered by Deer Creek ranged from roughly $675 million to nearly $1.5 billion.

In a follow-up decision released on September 23, 2008, Justice Romaine made a costs award in favour of Deer Creek. She found that the case involved “special circumstances” warranting a departure from the normal rule that dissenting shareholders should not bear the costs of valuation litigation. Costs were awarded on the basis of a multiple of five times the amounts set out in the maximum column of the schedule under the Alberta Rules of Court.

The litigation arose in the wake of an August 2005 takeover bid of $25 per share by Total E&P Canada Ltd. for Deer Creek, an early-stage oil sands company. The bid was increased in September to $31 per share to match a competing bid. Of Deer Creek's outstanding shares at the date of the takeover bid, 82.4 per cent were tendered to the Total bid. However, Paulson began accumulating shares in the market upon the announcement of the offer and ultimately acquired nearly 8.5 million shares, roughly a 16 per cent interest.

Total offered the other shareholders the same $31 per share at which the takeover bid had cleared the market. Paulson and a small number of individual shareholders decided to dissent and to assert that they were entitled to far in excess of $31 as the fair value of Deer Creek's shares.

Through the cooperation of all parties, proceedings were commenced in early 2006 and the determination of the fair value of Deer Creek's shares proceeded on an expedited basis to a four-week trial in mid-September of the same year. Extensive written arguments were submitted in December and January 2007, with oral argument following on February 16, 2007.

The decision addresses a number of issues relating to the determination of fair value in dissenting shareholder proceedings.

The dissenting shareholders have appealed the decision to the Alberta Court of Appeal.

The Macleod Dixon LLP team handling the litigation included Clarke Hunter, QC, Glen Poelman, Steven Leitl, Lori Bevan, Andrea Sparkes and Scott Gordon, with securities law support from Robert Engbloom, QC, who had earlier led the legal team on the takeover bid itself.

Paulson was represented by Frank Foran, QC, Randall Block, QC, and Jennifer Faircloth of the Calgary office of Borden Ladner Gervais LLP. A group of individual shareholders led by their broker Steve Boivin was represented by Michael Briggs of the Calgary office of McCarthy Tétrault LLP. The David Gabai family was represented by Lorenz Berner of Peacock Linder & Halt LLP.


Robert J. Engbloom Frank R. Foran Lori M. Bevan Randall W. Block Michael D. Briggs Scott R. Gordon Jennifer A. Faircloth Lorenz Berner Clarke Hunter Steven H. Leitl Andrea Sparkes